What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-21 compared with 2023-02-16 · 196 added, 171 removed, 262 unchanged (58% of the section changed)

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A detailed discussion of our 2021 financial condition and results of operations, and of 2022 year-over-year changes as compared to 2021, can be found in “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on February 16, 2023.

We have a portfolio of proprietary products that we manufacture, market and sell in the U.S.—VIVITROL, ARISTADA, ARISTADA INITIO and most recently, LYBALVI, which we launched commercially in October 2021.

We have a portfolio of proprietary products that we manufacture, market and sell in the U.S.—VIVITROL, ARISTADA, ARISTADA INITIO and LYBALVI.

We also earn manufacturing and/or royalty revenues on net sales of products commercialized by our licensees, the most significant of which in 2023 were the long-acting INVEGA products and VUMERITY.

We expect VIVITROL, ARISTADA, ARISTADA INITIO, LYBALVI and VUMERITY to generate significant revenues for us in the near- and medium-term as we believe these products are singular or competitively advantaged products in their classes.

In 2022, we incurred an operating loss of $142.3 million, as compared to an operating loss of $29.3 million in 2021.

The increase in the operating loss was primarily due to an increase in operating expenses of $51.0 million and a decrease in revenues of $62.0 million.

In 2023, our net income from continuing operations was $519.2 million, as compared to net loss from continuing operations of $33.2 million in 2022.

The increase in net income from continuing operations was primarily due to increases of $142.4 million in product sales, net, $411.4 million in manufacturing and royalty revenue and $99.6 million in income tax benefit, partially offset by increases of $34.9 million in cost of goods manufactured and sold and $99.0 million in selling, general and administrative expenses.

The increase in manufacturing and royalty revenue primarily relates to the successful outcome of the arbitration proceedings in respect of the long-acting INVEGA products.

These items are discussed in further detail within the “Results of Operations” section below.

In November 2022, we announced our intent, as approved by our board of directors, to separate our neuroscience business and oncology business.

We are exploring a separation of the oncology business into an independent, publicly-traded company as part of an ongoing review of strategic alternatives for the oncology business.

Following the planned separation, we would focus on driving growth of our proprietary commercial products:

LYBALVI, ARISTADA, ARISTADA INITIO and VIVITROL and on advancing the development of pipeline programs focused on neurological disorders.

We also expect to retain manufacturing and royalty revenues related to our licensed products and third-party products using our proprietary technologies under license.

would focus on the discovery and development of cancer therapies, including the continued development of nemvaleukin alfa and our portfolio of novel, preclinical, engineered cytokines.

The separation, if consummated, is expected to be completed in the second half of 2023 and is subject to customary closing conditions, including final approval by our board of directors and, if sought, receipt of a private letter ruling from the IRS and/or tax opinion from our tax advisors.

COVID-19 Update

The COVID-19 pandemic has impacted, and may continue to impact, many aspects of society, including the operation of healthcare systems, global travel, supply and labor markets and other business and economic activity worldwide.

A number of the marketed products from which we derive revenue, including manufacturing and royalty revenue, are injectable medications administered by healthcare professionals, which have been, and may continue to be, adversely impacted to varying degrees as a result of COVID-19 related closures, restrictions, labor shortages and other disruptions that have transpired, and may continue to transpire, while the pandemic persists.

The COVID-19 pandemic has caused, and may continue to cause, varying degrees of disruption to our employees and our business operations.

While we have continued to operate our manufacturing facilities and supply our medicines throughout the pandemic, we have at times during the pandemic experienced labor or supply chain disruptions at our manufacturing facilities and may continue to experience such disruptions while the pandemic persists, which could impact our ability to manufacture our products and the third-party products from which we receive revenue in a timely matter or at all.

In addition, while we have continued to conduct R&D activities, including our ongoing clinical trials, the COVID-19 pandemic has at times impacted the timelines of certain of our early-stage discovery efforts and clinical trials, and may continue to impact such timelines while the pandemic persists.

We work with our internal teams, our clinical investigators, R&D vendors and critical supply chain vendors to continually assess, and mitigate, the potential impact of COVID-19 on our manufacturing operations and R&D activities.

The degree to which the COVID-19 pandemic may continue to impact our employees, business, financial condition and results of operations will depend on the ultimate severity and duration of the pandemic and the manner in which it continues to evolve, including the emergence, prevalence and severity of new COVID-19 variants, and future developments in response thereto.

Due to these and numerous other uncertainties surrounding the ongoing COVID-19 pandemic, the actual impact of the pandemic on our financial condition and operating results may differ from our current projections.

For additional information about risks and uncertainties related to the COVID-19 pandemic that may impact our business, our financial condition or our results of operations, see “Item 1A—Risk Factors” in this Annual Report and specifically the section entitled “Our business, financial condition and results of operations have been, and may continue to be, adversely affected by the ongoing COVID-19 pandemic or other similar outbreaks of contagious diseases.”

Business Update

On November 15, 2023, we completed the separation of our oncology business into Mural Oncology plc (“Mural”), a new, independent, publicly-traded company (the “Separation”).

The Separation was effected by means of a distribution of all of the outstanding ordinary shares of Mural to our shareholders (the “Distribution”), in which each of our shareholders received one ordinary share, nominal value $0.01 per share, of Mural for every ten ordinary shares, par value $0.01 per share, of Alkermes held by such shareholder as of the close of business on November 6, 2023, the record date for the Distribution.

The effective time of the Distribution was 12:01 a.m.

Eastern time on November 15, 2023 (the “Separation Date”).

In connection with the Separation, we entered into a separation agreement with Mural that, among other things, sets forth the principal terms of the Separation and the Distribution, and a number of other ancillary agreements.

The Separation and related agreements are more fully described in Note 3, Discontinued Operations , in the “Notes to Consolidated Financial Statements” in this Annual Report.

On December 14, 2023, we announced that we entered into a definitive agreement to sell the Athlone Facility to Novo and plan to enter into subcontracting arrangements to continue certain development and manufacturing activities currently performed at the Athlone Facility for a period of time after the closing of the transaction, which arrangements may continue through the end of 2025.

The transaction is subject to various uncertainties and risk, including, without limitation, satisfaction of the conditions to closing of the transaction on the anticipated timeline, potential negative impacts on our relationships with current suppliers or licensees or diversion of management and employee attention from daily business operations, and risks inherent in the transition to subcontracting arrangements.

The transaction is expected to close in mid-2024, subject to certain closing conditions.

Results of Operations

As a result of the Separation, the historical results of our oncology business have been reflected as discontinued operations in our consolidated financial statements through the Separation Date.

Prior period results of operations and balance sheet information have been recast to reflect this presentation.

Product Sales, Net

Our product sales, net consist of sales in the U.S.

of VIVITROL, ARISTADA, ARISTADA INITIO, and following its commercial launch in October 2021, LYBALVI, primarily to wholesalers, specialty distributors and pharmacies.

The following table presents the adjustments deducted from product sales, gross to arrive at product sales, net for sales of VIVITROL, ARISTADA, ARISTADA INITIO and LYBALVI in the U.S.

during the years ended December 31, 2022 and 2021:

Our product sales, net, consist of sales of VIVITROL, ARISTADA and ARISTADA INITIO, and LYBALVI, primarily to wholesalers, specialty distributors and pharmacies.

The following table presents the adjustments deducted from product sales, gross to arrive at product sales, net, for sales of these products during the years ended December 31, 2023 and 2022:

Year Ended December 31,

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Product sales, net

Product sales, net during the years ended December 31, 2022 and 2021 were as follows:

VIVITROL product sales, gross, increased by 13%, which was primarily due to an increase of 5% in the number of VIVITROL units sold and a 6% increase in the selling price of VIVITROL that went into effect in January 2023.

ARISTADA and ARISTADA INITIO product sales, gross, increased by 11%, which was primarily due to an increase of 8% in the number of ARISTADA and ARISTADA INITIO units sold and a 3% increase in the selling price of ARISTADA and ARISTADA INITIO that went into effect in January 2023.

LYBALVI product sales, gross, increased by 102%, which was primarily due to an increase of 97% in the number of units sold and increases of 6% and 3% in the selling price of LYBALVI that went into effect in November 2022 and July 2023, respectively.

The following table compares product sales, net earned during the years ended December 31, 2023 and 2022:

Year Ended December 31,

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Product sales, net

VIVITROL product sales, gross, increased by 7% in 2022 which was primarily due to an increase of 2% in the number of VIVITROL units sold and a 6% increase in the selling price of VIVITROL that went into effect in April 2022.

ARISTADA and ARISTADA INITIO product sales, gross, increased by 11% in 2022 which was primarily due to an increase of 8% in the number of ARISTADA and ARISTADA INITIO units sold and a 3% increase in the selling price of ARISTADA and ARISTADA INITIO that went into effect in April 2022.

The increase in LYBALVI during 2022, as compared to 2021, was due to the product having a full year of sales in 2022 following its commercial launch in October 2021.

The decrease in Medicaid rebates as a percentage of sales was primarily due to actual Medicaid utilization rates related to VIVITROL being lower than original estimates as such rates normalize from initial pandemic levels and due to the increased sales of LYBALVI, which had lower Medicaid utilization than VIVITROL and ARISTADA.

A number of companies are working to develop products to treat addiction, including alcohol and opioid dependence, that may compete with, and negatively impact, future sales of VIVITROL.

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The latest to expire of our patents covering VIVITROL will expire in 2029 in the U.S.

and expired in Europe in 2021.

Under the terms of a settlement and license agreement, we granted Amneal a license under certain patents covering VIVITROL, including the latest to expire patent covering VIVITROL in the U.S., to market and sell a generic formulation of VIVITROL in the U.S.

beginning sometime in 2028 or earlier under certain circumstances.

We are currently engaged in Paragraph IV litigation with certain Teva entities in respect of the last to expire patent covering VIVITROL in the U.S.

For a discussion of these legal proceedings, see Note 17, Commitments and Contingent Liabilities in the “Notes to Consolidated Financial Statements” in this Annual Report and for information regarding the risks relating to these legal proceedings, see “Item 1A—Risk Factors” in this Annual Report and specifically the section entitled “Risks Related to our Intellectual Property—We or our licensees may face claims against IP rights covering our products and competition from generic drug manufacturers”.

Pursuant to the terms of a confidential settlement and license agreement entered into in August 2023 with Teva, we granted Teva a non-exclusive, royalty-free, non-transferable, non-sublicensable limited license under the remaining patent covering VIVITROL to market and sell a generic version of VIVITROL in the U.S.

beginning on the First Entry Date, or earlier under certain circumstances.

Under the terms of a settlement and license agreement entered into in July 2019 with Amneal, we granted Amneal a non-exclusive license under certain patents covering VIVITROL, including the remaining patent covering VIVITROL in the U.S., to market and sell a generic formulation of VIVITROL in the U.S.

beginning on the earlier of the First Entry Date, sometime in 2028 or earlier under certain circumstances.

A number of companies currently market and/or are developing products to treat schizophrenia and/or bipolar I disorder that may compete with and negatively impact future sales of ARISTADA, ARISTADA INITIO and LYBALVI.

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and, as such, we do not anticipate any generic versions of these products to enter the market in the near term.

We expect our product sales, net will continue to grow as VIVITROL continues to penetrate the alcohol dependence and opioid dependence markets in the U.S., as ARISTADA and ARISTADA INITIO continue to gain market share in the U.S., and as we continue the commercial launch of LYBALVI.

We expect our product sales, net will continue to grow as VIVITROL continues to penetrate the alcohol dependence market in the U.S., as ARISTADA and ARISTADA INITIO continue to gain market share in the U.S., and as we continue to grow sales of LYBALVI in the U.S.

Manufacturing and Royalty Revenues

Manufacturing revenue from RISPERDAL CONSTA and VUMERITY are recognized at the point in time that the product has been fully manufactured.

Manufacturing revenues for third-party products using our proprietary technologies are mostly recognized over time as products move through the manufacturing process, using an input method based on costs as a measure of progress.

Royalties earned on our licensees’ net sales of third-party products using our proprietary technologies are generally recognized in the period such products are sold by our licensees.

Manufacturing revenues for other third-party products using our proprietary technologies are mostly recognized over time as products move through the manufacturing process, using an input method based on costs as a measure of progress.

Royalties earned on our licensees’ net sales of products using our proprietary technologies are generally recognized in the period such products are sold by our licensees.

The following table compares manufacturing and royalty revenues earned in the years ended December 31, 2023 and 2022:

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The know-how royalty rate resets to 3.5% at the beginning of each calendar year and is payable until 15 years from the first commercial sale of a product in each individual country, subject to expiry of the agreement.

For more information about the license agreement with Janssen in respect of the long-acting INVEGA products, see “Collaborative Arrangements—Janssen” in “Item 1—Business” in this Annual Report.

In November 2021, we received notice of partial termination of our license agreement with Janssen under which we provided Janssen with rights to, and know-how, training and technical assistance in respect of, our small particle pharmaceutical compound technology, known as NanoCrystal technology, which was used to develop INVEGA SUSTENNA/XEPLION, INVEGA TRINZA/TREVICTA, and INVEGA HAFYERA/BYANNLI.

The partial termination became effective in February 2022, at which time Janssen ceased paying royalties related to sales of INVEGA SUSTENNA, INVEGA TRINZA and INVEGA HAFYERA in the U.S.

In November 2021, we received notice from Janssen of partial termination of our license agreement under which we provided Janssen with rights to, and know-how, training and technical assistance in respect of, our NanoCrystal technology, which was used to develop the long-acting INVEGA products.

The partial termination became effective in February 2022, at which time Janssen ceased paying us royalties related to sales of INVEGA SUSTENNA, INVEGA TRINZA and INVEGA HAFYERA.

Accordingly, we ceased recognizing royalty revenue related to sales of these products in February 2022.

In April 2022, we commenced binding arbitration proceedings related to, among other things, Janssen’s partial termination of this license agreement and Janssen’s royalty and other obligations under the agreement.

On December 21, 2022, we received the Interim Award for these proceedings from the Tribunal, in which the Tribunal agreed with our position that, while Janssen may terminate the agreement, it may not continue to sell Products (as defined in the agreement) developed during the term of the agreement without paying royalties pursuant to the term of the agreement.

This award is not yet final.

We will engage with Janssen and the Tribunal in additional proceedings prior to the Tribunal’s issuance of a final award.

Accordingly, we have not recognized royalty revenue related to U.S.

sales of long-acting INVEGA products since February 2022.

For additional information regarding the arbitration proceedings with Janssen, see Note 17, Commitments and Contingent Liabilities in the “Notes to Consolidated Financial Statements” in this Annual Report.

For information about risks relating to the notice of partial termination and our collaborative arrangements more broadly, see “Item 1A—Risk Factors” in this Annual Report and specifically the section entitled “We rely heavily on our licensees in the commercialization and continued development of products from which we receive revenue and, if our licensees are not effective, or if disputes arise in respect of our contractual arrangements, our revenues could be materially adversely affected.”

The decrease in royalty revenues from the long-acting INVEGA products was primarily due to Janssen’s partial termination of our license agreement related to such products.

When the partial termination of the license agreement became effective in February 2022, Janssen ceased paying royalties related to sales of INVEGA SUSTENNA, INVEGA TRINZA and INVEGA HAFYERA in the U.S.

and we stopped recognizing royalty revenue related to net sales of these products.

During 2022, Janssen’s rest of world net sales were $1,426.0 million, as compared to $1,472.0 million during 2021.

We expect royalty revenues from net sales of XEPLION, TREVICTA and BYANNLI to decrease over time.

The amount, timing and duration of royalty revenues from sales of INVEGA SUSTENNA, INVEGA TRINZA and INVEGA HAFYERA depend upon the outcome of our dispute with Janssen related to the impact of its partial termination of our license agreement on its obligations to continue to pay us know-how royalties in accordance with the terms of the agreement.

In May 2023, the Tribunal issued the Final Award, which concluded the arbitration proceedings.

The Final Award provided that we were due back royalties of $195.4 million, inclusive of $8.1 million in late-payment interest, related to 2022 U.S.

net sales of the long-acting INVEGA products, which we received from Janssen in the second quarter of 2023, and are entitled to 2023 and future royalty revenues from Janssen related to net sales of INVEGA SUSTENNA through August 20, 2024, INVEGA TRINZA through the second quarter of 2030 (but no later than May 2030 when the license agreement expires) and INVEGA HAFYERA through May 2030 (when the license agreement expires).

Following issuance of the Final Award, we recognized royalty revenues related to the back royalties for 2022, as described above, and resumed recognizing royalty revenue related to ongoing U.S.

sales of the long-acting INVEGA products.

Royalty revenues related to the long-acting INVEGA products increased by $370.4 million during 2023, as compared to 2022, primarily due to the receipt of the back royalties and late-payment interest described above and a full year of royalty revenue related to worldwide net sales of the long-acting INVEGA products of approximately $290.7 million, as compared to royalty revenue of $115.7 million during 2022.

Janssen’s worldwide net sales of the long-acting INVEGA products were $4,115.0 million during 2023, as compared to $4,140.0 million during 2022.

We expect royalty revenues from net sales of the long-acting INVEGA products to decrease in the near-term, as the royalty revenues related to net sales of INVEGA SUSTENNA are expected to end on August 20, 2024, which could have a significant impact on our INEVGA SUSTENNA royalty revenues during 2024.

In addition, each of INVEGA SUSTENNA and INVEGA TRINZA are currently subject to Paragraph IV litigation in response to companies seeking to market generic versions of such products.

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For a discussion of these legal proceedings, see Note 19, Commitments and Contingent Liabilities in the “Notes to Consolidated Financial Statements” in this Annual Report, and for information about risks relating to these legal proceedings, see “Item 1A—Risk Factors” in this Annual Report, and specifically the section entitled “We or our licensees may face claims against IP rights covering our products and competition from generic drug manufacturers.”

We receive a 15% royalty on worldwide net sales of VUMERITY manufactured and packaged by us, subject to increases in such royalty rate for VUMERITY manufactured and/or packaged by Biogen or its designees, in the period that the end-market sales of VUMERITY occur.

We also recognize manufacturing revenue related to VUMERITY at cost plus 15%, upon making available bulk batches of VUMERITY to Biogen and, to the extent we package such product, then also when packaged batches of VUMERITY are made available to Biogen.

Manufacturing revenue from VUMERITY increased by $10.4 million during 2023, primarily due to an increase in the number of bulk batches made available to Biogen.

Royalty revenue related to VUMERITY increased by $3.4 million during 2023, due to an increase in end-market net sales of VUMERITY, which were $576.3 million during 2023, as compared to $553.4 million during 2022.

We recognize manufacturing revenue for RISPERDAL CONSTA at the point in time when RISPERDAL CONSTA has been fully manufactured, which is deemed to have occurred when the product is approved for shipment by both us and Janssen.

We record royalty revenue, equal to 2.5% of Janssen’s end-market net sales, in the period that the end-market sales of RISPERDAL CONSTA occur.

The decrease in revenue from RISPERDAL CONSTA was primarily due to a decrease of $3.2 million in royalty revenue, partially offset by a $2.2 million increase in manufacturing revenue.

This decrease in royalty revenue was due to a decrease in end-market sales of RISPERDAL CONSTA, which was $485.0 million during 2022, as compared to $592.0 million during 2021.

The increase in manufacturing revenue was primarily due to an increase in the number of units approved for shipment to Janssen.

We expect revenues from RISPERDAL CONSTA to decrease over time.

The latest to expire patent covering RISPERDAL CONSTA expired in 2021 in the EU and expired in January 2023 in the U.S., and we are aware of potential generic competition for RISPERDAL CONSTA that may lead to reduced unit sales and increased pricing pressure.

We receive a 15% royalty on worldwide net sales of VUMERITY for product manufactured and packaged by us, subject to increases for VUMERITY manufactured and/or packaged by Biogen or its designees, in the period that the end-market sales of VUMERITY occur.

The increase in revenue from VUMERITY was due to increases of $6.7 million and $21.4 million in manufacturing revenue and royalty revenue, respectively.

The increase in manufacturing revenue was due to an increase in the number of packaged batches that were manufactured for Biogen, partially offset by a manufacturing issue related to VUMERITY, which, for a period during 2022, negatively impacted the number of commercial batches we were able to manufacture.

The increase in royalty revenue was due to an increase in net sales of VUMERITY, which were $553.4 million during 2022, as compared to $410.0 million during 2021.

The decrease in other manufacturing and royalty revenue was primarily due to the decision from an arbitration panel in October 2022, which found that we must return to Acorda $16.5 million (inclusive of prejudgment interest and administrative fees) previously paid by Acorda under a license agreement between the Company and Acorda.

In November 2022, the panel found that we must pay to Acorda an additional $1.8 million (inclusive of prejudgment interest).

These amounts represent a portion of the royalty revenue paid to us by Acorda since July 2020 related to AMPYRA.

We paid the $16.5 million in October 2022 and paid the additional $1.8 million in December 2022.

In addition, during the three months ended June 30, 2022, we had recorded $3.2 million of royalty revenue related to AMPYRA as we believed that we had met the necessary revenue recognition criteria under the Financial Accounting Standards Board Accounting Standards Codification 606, Revenue from Contracts with Customers (“Topic 606”).

However, as a result of the arbitration ruling, we reversed the $3.2 million as the panel found that we were no longer entitled to be paid those royalties.

During the three months ended September 30, 2022, we recorded both the approximately $18.3 million in repayments and the $3.2 million reversal as reversals of royalty revenue within “Manufacturing and royalty revenue” in the accompanying consolidated statements of operations and comprehensive loss.

As a result of the arbitration ruling, we no longer have a contractual obligation to manufacture and supply AMPYRA or a contractual right to receive future manufacturing or royalty revenue related to AMPYRA.

In January 2023, Acorda filed a petition with the U.S.

District Court for the Southern District of New York asking the court to confirm in part and modify in part the final arbitral award rendered by the arbitration panel in October 2022 and, as part of the requested modification, seeking an additional approximately $66.0 million in damages.

We intend to contest this petition and believe it is without merit.

We expect revenues from RISPERDAL CONSTA to continue to decrease over time as patents covering RISPERDAL CONSTA expire in markets where end-market net sales of RISPERDAL CONSTA occur.

We are aware of potential generic and other competition to RISPERDAL CONSTA that may lead to reduced unit sales and increased pricing pressure.

The decrease in revenue from RISPERDAL CONSTA during 2023 was primarily due to decreases of $6.6 million in manufacturing revenue and $6.1 million in royalty revenue.

The decrease in manufacturing revenue was primarily due to a decrease in the number of U.S.

batches made available to Janssen and a 7% decrease in the rest of world average selling price of the product.

The decrease in royalty revenue was primarily due to expirations of the patents covering RISPERDAL CONSTA, which expired in the U.S.

in January 2023 and expired in the EU in 2021.

Certain of our manufacturing and royalty revenues are earned in countries outside of the U.S.

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Cost of goods manufactured and sold

The increase in cost of goods manufactured and sold was primarily due to increases of $6.4 million and $4.8 million, respectively, in the cost of goods manufactured for VUMERITY and RISPERDAL CONSTA and increases of $5.6 million and $10.2 million, respectively, in the cost of goods sold for VIVITROL and LYBALVI.

The increases related to VUMERITY and RISPERDAL CONSTA were primarily due to increased manufacturing activity, as discussed above.

The increase related to LYBALVI was primarily due to the increase in sales activity, as discussed above.

The increase related to VIVITROL was primarily due to an increase in costs incurred for out-of-specification batches, as well as an increase in sales activity, as discussed above.

(1) Prior period amounts have been retrospectively adjusted to reflect the effects of the Separation.

The increase in cost of goods manufactured and sold during 2023 was primarily due to an increase of $8.0 million in the cost of goods manufactured for VUMERITY and increases of $15.5 million, $13.3 million and $6.2 million, respectively, in the cost of goods sold for VIVITROL, LYBALVI and ARISTADA, partially offset by a decrease of $2.0 million in the cost of goods manufactured for RISPERDAL CONSTA.

The increase related to VUMERITY was primarily due to increased manufacturing activity, as described above.

The increases related to LYBALVI and ARISTADA were primarily due to the increases in sales activity, as described above.

The increase in the cost of goods sold related to VIVITROL was due to an increase in sales activity, as described above, and an increase in costs related to out-of-specification batches.

These increases were partially offset by decreases in cost of goods manufactured for RISPERDAL CONSTA, primarily due to a decrease in U.S.

batches made available to Janssen, as described above, and in the cost of goods manufactured for certain legacy products that we manufacture due to a decrease in sales of such products.

Research and Development Expenses

For each of our R&D programs, we incur both external and internal expenses.

External R&D expenses include fees for clinical and non-clinical activities performed by CROs, consulting fees, and costs related to laboratory services, the purchase of drug product materials and third-party manufacturing development activities.

For each of our research and development (“R&D”) programs, we incur both external and internal expenses.

External R&D expenses include fees for clinical and preclinical activities performed by contract research organizations, consulting fees, and costs related to laboratory services, the purchase of drug product materials and third-party manufacturing development activities.

Internal R&D expenses include employee-related expenses, occupancy costs, depreciation and general overhead.

We track external R&D expenses for each of our development programs;

however, internal R&D expenses are not tracked by individual program as they can benefit multiple programs or our technologies in general.

however, internal R&D expenses are not tracked by individual program as they can benefit multiple development programs or our products or technologies in general.

The following table sets forth our external R&D expenses for the years ended December 31, 2023 and 2022 relating to our then-current development programs and our internal R&D expenses, listed by the nature of such expenses:

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Research and development expenses

(1) Prior period amounts have been retrospectively adjusted to reflect the effects of the Separation.

These amounts are not necessarily predictive of future R&D expenses.

In an effort to allocate our spending most effectively, we continually evaluate our products under development based on the performance of such products in preclinical and/or clinical trials, our expectations regarding the likelihood of their regulatory approval and our view of their future potential commercial viability, among other factors.

The decrease in expenses related to nemvaleukin was primarily due to decreased spend on the ARTISTRY-1 study, partially offset by increased spend on the ARTISTRY-7 study.

For additional detail on the ARTISTRY development program for nemvaleukin, see “Item 1—Business” in this Annual Report and specifically the section entitled “Key Development Program – nemvaleukin alfa”.

The decrease in expenses related to LYBALVI was primarily due to decreased R&D activities for the product in light of its commercial launch in October 2021, partially offset by continued spend on ongoing clinical studies.

The decrease in expenses related to ALKS 1140 was primarily due to the termination of the ALKS 1140 clinical development program in the second quarter of 2022, as the initial data did not support further clinical development, and a $25.0 million development milestone in the third quarter of 2021 related to the submission of a clinical trial authorization for ALKS 1140.

The increase in other external R&D expenses was primarily due to an increase of $10.2 million related to our early-stage development programs.

The increase in employee-related expense was primarily related to an increase of $5.5 million in labor and benefits, primarily due to increases in recruitment costs and temporary labor and an increase of $3.2 million in R&D-related share-based compensation, primarily due to an increase in the fair value of the awards granted in 2022.

The increase in expenses related to ALKS 2680 during 2023 was primarily due to an increase in early-stage development expenses, including chemistry manufacturing and controls expenses and spend on a phase 1b proof-of-concept study, which was initiated in the second quarter of 2023.

The decrease in expenses related to LYBALVI during 2023 was primarily due to decreased spend on certain ongoing long-term safety and tolerability studies as they near completion, partially offset by increased spend on the pediatric study related to the product.

The decrease in other external R&D expenses was primarily due to the termination of the ALKS 1140 clinical development program in the second quarter of 2022.

Selling, General and Administrative Expenses

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Selling, general and administrative expense

The increase in selling and marketing expense was primarily due to a $14.6 million increase in employee-related expenses due to an increase in selling-and-marketing-related salaries and benefits and an increase of $10.0 million in marketing activity related to the commercial launch of LYBALVI.

The increase in general and administrative expense was primarily due to a $9.9 million increase in professional service fees, primarily due to increased spend on legal fees and fees related to the proposed separation of the Company’s oncology business.

We also had a $3.5 million increase in our branded prescription drug fee due to an increase in sales of our commercialized products and a $1.9 million increase in travel and expense, primarily due to resuming in-person meetings as travel restrictions loosened.

(1) Prior period amounts have been retrospectively adjusted to reflect the effects of the Separation.

The increase in selling and marketing expense during 2023 was primarily due to a $72.1 million increase in marketing spend related to the launch of the direct-to-consumer campaign for LYBALVI.

Employee-related expenses also increased by $25.2 million, primarily related to a 5% increase in sales and marketing headcount and an increase in employee travel as our in-person activities increased.

The increase in general and administrative expense during 2023 was primarily due to an increase in salaries and benefits of $7.6 million and an increase in our branded prescription drug fee of $2.1 million, partially offset by a decrease in professional services fees of $2.4 million, primarily due to decreased legal expenses.

Amortization of Acquired Intangible Assets

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We amortize our amortizable intangible assets using the economic use method, which reflects the pattern that the economic benefits of the intangible assets are consumed as revenue is generated from the underlying patent or contract.

Based on our most recent analysis, amortization of intangible assets included within our consolidated balance sheet at December 31, 2022 is expected to be approximately $35.0 million and $1.0 million in the years ending December 31, 2023 and 2024, respectively.

Other Expense, Net

Based on our most recent analysis, amortization of intangible assets included within our consolidated balance sheet at December 31, 2023 is expected to be approximately $2.0 million in the year ending December 31, 2024.

Other Income (Expense), Net

Year Ended December 31,

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Change in the fair value of contingent consideration

Other income, net

Total other expense, net

The increase in total other expense, net was primarily due to the change in the fair value of contingent consideration and an increase in interest expense, partially offset by increases in interest income and other income, net.

The change in the fair value of the contingent consideration was due to the determination that it was unlikely that we would collect any further contingent consideration proceeds from Baudax Bio, Inc.

(“Baudax”), and accordingly, we reduced the fair value of the contingent consideration to zero, as discussed in Note 5, Fair Value , in the “Notes to Consolidated Financial Statements” in this Annual Report.

Interest expense consists primarily of interest incurred on our 2026 Term Loans.

Other (expense) income, net

Total other income (expense), net

Interest income consists primarily of interest earned on our available-for-sale investments.

The increases in interest income and interest expense were primarily due to increases in interest rates.

The increase in interest expense was partially offset by a decrease in certain financing costs related to the Term Loan Refinancing completed in March 2021.

The Term Loan Refinancing is discussed in Note 11, Long-Term Debt in the “Notes to Consolidated Financial Statements” in this Annual Report.

The increase in other income, net was primarily due to proceeds received in connection with the Company’s investment in Fountain Healthcare Partners II, L.P.

of Ireland (“Fountain”) in March 2022, partially offset by the write down of certain construction in progress due to the determination that certain construction in progress related to our agreement with Baudax had no future value, as discussed in Note 7, Property, Plant and Equipment , in the “Notes to Consolidated Financial Statements” in this Annual Report.

The Fountain investment is discussed in Note 4, Investments , in the “Notes to Consolidated Financial Statements” in this Annual Report.

Interest expense consists of interest incurred on our 2026 Term Loans.

The increases in interest income and interest expense were primarily due to increases in interest rates over the past twelve months, due to the rising interest rate environment during the year.

The change in the fair value of contingent consideration was due to the determination during 2022 that it was unlikely we would collect any further contingent consideration proceeds under our agreements with Baudax Bio, Inc.

(“Baudax”) in effect at the time, and accordingly, we reduced the fair value of the contingent consideration to zero, as discussed in Note 6, Fair Value , in the “Notes to Consolidated Financial Statements” in this Annual Report.

Income Tax (Benefit) Provision

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Income tax (benefit) provision

The income tax benefit in 2022 was primarily due to an enhanced foreign derived intangible income deduction that resulted from a change to Section 174 of the Tax Cuts and Jobs Act in relation to capitalization and amortization of R&D expenses.

(1) Prior period amounts have been retrospectively adjusted to reflect the effects of the Separation.

The income tax benefit in 2023 was primarily attributable to the partial release of the valuation allowance maintained against certain Irish deferred tax assets, partially offset by taxes on income earned in the U.S.

The income tax provision in 2022 was primarily due to U.S.

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These loss and credit carryforwards are subject to review and possible adjustment by the appropriate taxing authorities and may be subject to limitations based upon changes in the ownership of our ordinary shares.

As discussed in “Item 1A—Risk Factors” in this Annual Report and specifically the section entitled “Changes in tax rules and regulations, or interpretations thereof, may adversely affect our financial condition”, effective in 2022, the Tax Cuts and Jobs Act of 2017 requires us to capitalize, and subsequently amortize R&D expenses over five years for research activities conducted in the U.S.

and over fifteen years for research activities conducted outside of the U.S.

In 2022, this resulted in a material increase to our U.S.

income tax liability and net deferred tax assets and a material decrease to our cash flows provided from operations.

We expect an impact from this legislative change throughout the amortization period.

In December 2022, the EU agreed to implement a corporate minimum tax rate of 15% on companies with combined annual revenue of at least €750.0 million.

The Irish government will be required to transpose these rules into Irish legislation.

The new rules are expected to come into effect on January 1, 2024.

The Company is currently monitoring these developments and assessing the potential impact.

The Irish government has transposed the corporate minimum tax rules into Irish legislation with effect as of January 1, 2024.

Liquidity and Capital Resources

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We mitigate credit risk in our cash reserves by maintaining a well-diversified portfolio that limits the amount of investment exposure as to institution, maturity and investment type.

However, the value of these securities may be adversely affected by the instability of the global financial markets, which could, in turn, adversely impact our financial position and our overall liquidity.

Our available-for-sale investments consist primarily of short and long-term U.S.

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We have no off-balance sheet arrangements that are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources in the next twelve months.

As discussed above, we made a $25.0 million development milestone payment to the former shareholders of Rodin Therapeutics, Inc.

(“Rodin”) during the year ended December 31, 2021.

We are obligated to make up to $825.0 million in future payments, $225.0 million of which would be triggered upon achievement of certain specified clinical milestones, $300.0 million of which would be triggered by the achievement of certain regulatory milestones and $325.0 million of which would be triggered upon the attainment of certain sales thresholds.

In connection with our acquisition of Rodin Therapeutics, Inc.

(“Rodin”) in November 2019, we may become obligated to make up to $825.0 million in future milestone payments to the former shareholders of Rodin, $200.0 million of which would be triggered upon achievement of certain specified clinical milestones, $300.0 million of which would be triggered by the achievement of certain regulatory milestones and $325.0 million of which would be triggered upon the attainment of certain sales thresholds.

At December 31, 2023, we had not recorded a liability related to these milestone payments as none of the future events that would trigger a milestone payment were considered probable of occurring.

Information about our cash flows, by category, is presented in the accompanying consolidated statements of cash flows.

The discussion of our cash flows that follows does not include the impact of any adjustments to remove discontinued operations and is stated on a total company consolidated basis.

The following table summarizes our cash flows for the years ended December 31, 2023 and 2022:

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Cash flows provided by operating activities

Cash flows used in investing activities

Cash flows (used in) provided by financing activities

Cash flows provided by (used in) investing activities

Cash flows used in financing activities

Cash and cash equivalents, end of period

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Cash flows from operating activities represent the cash receipts and disbursements related to all of our activities other than investing and financing activities.

We expect cash provided from operating activities will continue to be our primary source of funds to finance operating needs and capital expenditures for the foreseeable future.

Operating cash flow is derived by adjusting our net loss for non-cash operating items such as depreciation, amortization and share-based compensation as well as changes in operating assets and liabilities, which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in our results of operations.

The decrease in cash flows provided by operating activities was primarily due to an increase in our net loss of $110.1 million and an increase in cash used for our lease liabilities of $15.3 million related to an early payment of our lease of approximately 231,000 square feet of office and laboratory space located at 900 Winter Street in Waltham, Massachusetts.

Please refer to Note 9, Leases , in the “Notes to Consolidated Financial Statements” in this Annual Report for additional information related to such early payment.

These were partially offset by an increase in the cash provided by working capital, primarily due to an increase in cash provided by receivables of $63.3 million and from accounts payable and accrued expenses of $4.0 million.

Operating cash flow is derived by adjusting our net income (loss) for non-cash operating items such as depreciation, amortization and share-based compensation and changes in operating assets and liabilities, which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in our results of operations.

Cash flows provided by operating activities during 2023 were $401.4 million and primarily consisted of net income of $355.8 million, adjusted for non-cash items, including share-based compensation of $100.9 million and depreciation and amortization of $74.9 million, partially offset by changes in working capital of $36.7 million and deferred income taxes of $99.9 million.

During 2023, net income included receipt of $195.4 million from Janssen, inclusive of $8.1 million in late-payment interest, related to 2022 U.S.

net sales of the long-acting INVEGA products following the successful outcome of the arbitration proceedings in respect of such products.

Cash flows provided by operating activities during 2022 were $21.0 million and primarily consisted of net loss of $158.3 million, adjusted for non-cash items including share-based compensation of $94.3 million, depreciation and amortization of $77.9 million, change in the fair value of contingent consideration of $21.8 million and changes in working capital of $12.8 million, partially offset by deferred income taxes of $32.8 million.

Investing Activities

The decrease in cash flows used in investing activities was primarily due to a $17.4 million decrease in net purchase of investments and a $6.7 million decrease in payments received in connection with the contingent consideration resulting from the Gainesville Transaction, partially offset by a $10.2 million increase in capital expenditures.

We expect to spend approximately $35.0 million to $40.0 million during the year ending December 31, 2023 for capital expenditures.

Cash flows provided by investing activities during 2023 were primarily due to $101.1 million in net sales of investments, offset by the purchase of $48.0 million of property, plant and equipment.

Cash flows used in investing activities during 2022 were primarily due to $28.0 million in net purchases of investments and the purchase of $38.3 million of property, plant and equipment.

We expect to spend approximately $35.0 million during the year ending December 31, 2024 for capital expenditures.

We continue to evaluate our manufacturing capacity based on expectations of demand for the products that we manufacture and will continue to record such amounts within construction in progress until such time as the underlying assets are placed into service, or we determine we have sufficient existing capacity and the assets are no longer required, at which time we would recognize an impairment charge.

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Financing Activities

The change in cash flows from financing activities was primarily due to $23.6 million in proceeds from the Term Loan Refinancing, which we received in 2021, and a $7.3 million decrease in the amount of cash that we received upon the exercise of employee stock options, net of employee taxes.

Cash flows used in financing activities during 2023 primarily related to $275.0 million in cash distributed to Mural in connection with the Separation and $28.5 million of employee taxes paid related to the net share settlement of equity awards, partially offset by $16.8 million of cash that we received upon exercises of employee stock options.

Cash flows used in financing activities during 2022 primarily related to $18.2 million of employee taxes paid related to the net share settlement of equity awards and $3.0 million of principal payments on our 2026 Term Loans, partially offset by $19.6 million of cash that we received upon exercises of employee stock options.

At December 31, 2023, our borrowings consisted of $291.8 million outstanding under the 2026 Term Loans.

The 2026 Term Loans bear interest at LIBOR plus 2.5%, with a LIBOR floor of 0.5%.

The 2026 Term Loans bear interest at SOFR plus a credit spread adjustment applicable to the interest period and an applicable margin of 2.5% with a floor of 0.5%.

Principal payments of $0.8 million are to be made quarterly through 2025, with a final payment of $285.8 million due in March 2026.

Please refer to Note 12, Long-Term Debt , in the “Notes to Consolidated Financial Statements” in this Annual Report for a discussion of our outstanding term loans.

Discontinued Operations

Net loss from discontinued operations consists of the results of our oncology business and is reported as a separate component of income.

For additional information, please refer to Note 3, Discontinued Operations , in the “Notes to Consolidated Financial Statements” in this Annual Report.

Critical Accounting Estimates

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Our product sales, net consist of sales in the U.S.

of VIVITROL, ARISTADA, ARISTADA INITIO and, following its commercial launch in October 2021, LYBALVI, primarily to wholesalers, specialty distributors and pharmacies.

of VIVITROL, ARISTADA, ARISTADA INITIO and LYBALVI, primarily to wholesalers, specialty distributors and pharmacies.

Product sales, net are recognized when the customer obtains control of the product, which is when the product has been received by the customer.

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Once product is returned, it is destroyed.

Actual product returns have not differed materially from our estimates;

• Medicare Part D —we record accruals for Medicare Part D liabilities under the Medicare Coverage Gap Discount Program (“CGDP”) as a reduction of sales.

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Under an agreement with the Centers for Medicare and Medicaid Services, manufacturers are responsible for reimbursement of prescription plan sponsors for the portion of out-of-pocket expenses not covered under their Medicare plans.

Actual Medicaid Part D rebates have not differed materially from our estimates.

A rollforward of our provisions for sales and allowances is as follows:

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Balance, December 31, 2021

Payments and credits related to:

Current year sales

Prior year sales

Balance, December 31, 2022

Payments and credits related to:

Current year sales

Prior year sales

Balance, December 31, 2023

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We recognize manufacturing revenues from the sale of products we manufacture for resale by our licensees.

Manufacturing revenues for our partnered products, with the exception of those from Janssen related to RISPERDAL CONSTA and from Biogen related to VUMERITY, are recognized over time as products move through the manufacturing process, using a standard cost-based model as a measure of progress, which represents a faithful depiction of the transfer of control of the goods.

We recognize manufacturing revenue from these products over time as we determined, in each instance, that we would have a right to payment for performance completed to date if our customer were to terminate the manufacturing agreement for reasons other than our non-performance and the products have no alternative use.

We invoice our licensees upon shipment with payment terms between 30 to 90 days.

We are the exclusive manufacturer of RISPERDAL CONSTA for commercial sale under our manufacturing and supply agreement with Janssen.

We determined that it is appropriate to record revenue under this agreement at the point in time when control of the product passes to Janssen, which is determined to be when the product has been fully manufactured, since Janssen does not control the product during the manufacturing process and, in the event Janssen terminates the manufacturing and supply agreement, it is uncertain whether, and at what amount, we would be reimbursed for performance completed to date for product not yet fully manufactured.

The manufacturing process is considered fully complete once the finished goods have been approved for shipment by both us and Janssen.

We recognize manufacturing revenue related to VUMERITY at cost plus 15%, upon making available bulk batches of VUMERITY to Biogen and, to the extent we package such product, then also when packaged batches of VUMERITY are made available to Biogen.

Control of the product passes to Biogen when VUMERITY, in either bulk or finished form, is made available to Biogen.

Substantially all of our manufacturing revenues are recognized at a point in time when control of the product passes to the licensee.

The sales price for certain of our manufacturing revenues is based on the end-market sales price earned by our licensees.

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We recognize royalty revenues related to the sale by our licensees of products that incorporate our technology.

Substantially all of our royalties qualify for the sales-and-usage exemption under Topic 606 as (i) such royalties are based strictly on the sales-and-usage by the licensee;

All of our royalties qualify for the sales-and-usage exemption under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers , (“Topic 606”) as (i) such royalties are based strictly on the sales-and-usage by the licensee;

and (ii) a license of IP is the sole or predominant item to which such royalties relate.

Based on this exemption, such royalties are earned in the period the products are sold by our licensee and we have a present right to payment.

Based on this exemption, such royalties are earned in the period the products are sold by our licensees and we have a present right to payment.

Certain of our royalty revenues are recognized based on information supplied to us by our licensees and require estimates to be made.

Differences between actual royalty revenues and estimated royalty revenues are reconciled and adjusted for in the period in which they become known, which is generally within the same quarter.

The difference s between our actual and estimated royalty revenues ha ve not been material to date .

Research and Development Revenue and License Revenue

Research and development revenue consists of funding that compensates us for formulation, preclinical and clinical testing under research and development arrangements with our partners.

We generally bill our partners under such arrangements using a full-time equivalent or hourly rate, plus direct external costs, if any.

Revenue is recognized as the obligations under the arrangements are performed.

We recognize revenue from the grant of distinct, right-to-use licenses of IP when control of the license is transferred to our licensee, which is the point in time that the licensee is able to direct the use of and obtain substantially all of the benefits from the license.

Amortization and Impairment of Long‑Lived Assets

The differences between our actual and estimated royalty revenues have not been material to date.

Discontinued operations

We determined that the separation of our oncology business, which was completed on November 15, 2023, represented a disposal plan that met the criteria for classification of the oncology business as a discontinued operation in accordance with ASC 205-20, Discontinued Operations .

Accordingly, the accompanying consolidated financial statements for all periods have been updated to present the assets and liabilities associated with the oncology business separately as discontinued operations on the consolidated balance sheet and the results of such discontinued operations reported as a separate component of income in the consolidated statements of operations and comprehensive income (loss).

For additional information related to discontinued operations, refer to Note 3, Discontinued Operations , in our “Notes to Consolidated Financial Statements” in this Annual Report.

Impairment of Long-Lived Assets

Long-lived assets, other than goodwill which is separately tested for impairment, are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable.

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Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows.

Our amortizable intangible assets consist of IP and are being amortized as revenue is generated from products utilizing the IP, which we refer to as the economic benefit amortization model.

This amortization methodology involves calculating a ratio of actual current period sales to total anticipated sales for the life of the product and applying this ratio to the carrying amount of the intangible asset.

In order to determine the pattern in which the economic benefits of our intangible assets are consumed, we estimated the future revenues to be earned by products utilizing the capitalized IP from the date of acquisition to the end of their respective useful lives.

The factors used to estimate such future revenues included:

(i) our and our licensees’ projected future sales of the existing commercial products based on these intangible assets;

(ii) our projected future sales of new products based on these intangible assets which we anticipate will be launched commercially;

(iii) the patent lives of the technologies underlying such existing and new products;

and (iv) our expectations regarding the entry of generic and/or other competing products into the markets for such existing and new products.

These factors involve known and unknown risks and uncertainties, many of which are beyond our control and could cause the actual economic benefits of these intangible assets to be materially different from our estimates.

Based on our most recent analysis, amortization of intangible assets included within our consolidated balance sheet at December 31, 2022, is expected to be approximately $35.0 million and $1.0 million in the years ending December 31, 2023 and 2024, respectively.

Although we believe such available information and assumptions are reasonable, given the inherent risks and uncertainties underlying our expectations regarding such future revenues, there is the potential for our actual results to vary significantly from such expectations.

If revenues are projected to change, the related amortization of the intangible asset will change in proportion to the change in revenue.

If there are any indications that the assumptions underlying our most recent analysis would be different than those utilized within our current estimates, our analysis would be updated and may result in a significant change in the anticipated lifetime revenue of the products associated with our amortizable intangible assets.

For example, the occurrence of an adverse event could substantially increase the amount of amortization expense associated with our acquired intangible assets as compared to previous periods or our current expectations, which may result in a significant negative impact on our future results of operations.

The announcement of the planned sale of the Athlone Facility constituted an impairment-triggering event.

Accordingly, we performed a review of our long-lived intangible assets in accordance with ASC 350, Intangibles — Goodwill and Other and determined that the carrying value of our long-lived assets did not exceed the estimated fair value of such long-lived assets.

We evaluate goodwill for impairment for our reporting units annually, as of October 31, and whenever events or changes in circumstances indicate the carrying value of the reporting units may not be recoverable.

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Alternatively, we may elect to not first assess qualitative factors and instead immediately perform the quantitative impairment test.

On October 31, 2022, we elected to perform a qualitative impairment test and determined that based on the weight of all available evidence, the fair value of the reporting unit more-likely-than-not exceeded its carrying value.

Contingent Consideration

We record contingent consideration that we are entitled to receive related to the sale of a business at fair value on the acquisition date.

We estimate the fair value of contingent consideration through valuation models that incorporate probability-adjusted assumptions related to the achievement of milestones and the corresponding likelihood of receiving related payments.

We revalue our contingent consideration each reporting period, with changes in the fair value of contingent consideration recognized within the consolidated statements of operations and comprehensive loss.

Changes in the fair value of contingent consideration can result from changes to one or multiple assumptions, including adjustments to the discount rates, changes in the amount and timing of cash flows, changes in the assumed achievement and timing of any development and sales-based milestones, changes in the assumed probability associated with regulatory approval and changes in the probability of collection or default on portions of the contingent consideration due to us.

These fair value measurements are based on significant inputs, including inputs not observable in the market.

Significant judgment was employed in determining the appropriateness of these assumptions at the acquisition date and for each subsequent period.

Accordingly, changes in assumptions described above could have a material impact on the increase or decrease in the fair value of contingent consideration recorded in any given period.

When some, but not all, of a reporting unit is to be disposed of, the accounting for that reporting unit’s goodwill will depend on whether the disposal group constitutes a business.

If the disposal group constitutes a business, we attribute a portion of the reporting unit’s goodwill to the disposal group based on the relative fair values of:

(i) the disposal group;

and (ii) the portion of the reporting unit that will be retained.

On October 31, 2023, in connection with the Separation, we performed a quantitative impairment test and, while we determined that, based on the weight of all available evidence, the fair value of the reporting unit more-likely-than-not exceeded its carrying value, it was also determined that as a portion of the IP that transferred to Mural was owned by the reporting unit to which our goodwill was assigned, a portion of our goodwill was allocated to Mural.

Please refer to Note 9, Goodwill and Intangible Assets in our “Notes to Consolidated Financial Statements” in this Annual Report for additional information.

In connection with the planned sale of the Athlone Facility, we have reviewed FASB ASC 805, Business Combinations and, based on the definitions therein, have determined that the Athlone Facility constitutes a business and, accordingly, a portion of our goodwill was allocated to the Athlone Facility and is classified as “Assets held for sale” within the accompanying consolidated balance sheets as of December 31, 2023 and 2022.

Please refer to Note 9, Goodwill and Intangible Assets in our “Notes to Consolidated Financial Statements” in this Annual Report for additional information.

Valuation of Deferred Tax Assets

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• near- and medium-term financial outlook.

We utilize a rolling three years of actual and current year anticipated results as the primary measures of cumulative losses in recent years.

We utilize a rolling three years of actual and current year anticipated results as the primary measures of cumulative income (losses) in recent years.

For additional information related to our assessment of our valuation allowance, see Note 17, Income Taxes in the “Notes to Consolidated Financial Statements” in this Annual Report.

The evaluation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns and future profitability.

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Recent Accounting Pronouncements

Please refer to Note 2, Summary of Significant Accounting Policies , “New Accounting Pronouncements” in our “Notes to Consolidated Financial Statements” in this Annual Report for a discussion of new accounting standards.

Quantitative and Qualitat ive Disclosures about Market Risk

We hold securities in our investment portfolio that are sensitive to market risks.

Our securities with fixed interest rates may have their market value adversely impacted by a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall.

Due in part to these factors, our future investment income may fall short of expectations due to a fall in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates.

However, because we classify our investments in debt securities as available-for-sale, no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary.

Should interest rates fluctuate by 10%, our interest income would change by an immaterial amount over an annual period.

We do not believe that we have a material exposure to interest rate risk as our investment policies specify credit quality standards for our investments and limit the amount of credit exposure from any single issue, issuer or type of investment.

Although we have seen a significant increase in the number of our investment securities in unrealized loss positions, we do not believe our exposure to liquidity and credit risk to be significant as approximately 36% and 61% of our investments at December 31, 2023 are in corporate debt securities with a minimum rating of A2 (Moody’s)/A (Standard and Poor’s) and debt securities issued by the U.S.

government or its agencies, respectively.

We have the intent and ability to hold these securities until recovery, which may be at maturity.

At December 31, 2023, our borrowings consisted of $291.8 million outstanding under the 2026 Term Loans.

The 2026 Term Loans mature on March 12, 2026.

In June 2023, we amended the 2026 Terms Loans to transition the interest rate available for borrowings thereunder from a LIBOR-based interest rate to an interest rate based on SOFR and to make other conforming and mechanical changes.

The 2026 Term Loans bear interest at the one-, three- or six-month SOFR rate of our choosing plus a credit spread adjustment applicable to the interest period and an applicable margin of 2.50% with a floor of 0.5%.

We are currently using the one-month SOFR rate, which was 5.47% at December 31, 2023.

A 10% increase in the one-month SOFR rate would have increased the amount of interest we owed by approximately $2.3 million.

At December 31, 2022, a 10% increase in the one-month LIBOR rate, which was the rate in use at the time, would have increased the amount of interest we owed by approximately $1.3 million.

Currency Exchange Rate Risk

Manufacturing and royalty revenues that we receive on certain of our products and services are a percentage of the net sales made by our licensees, and a portion of these sales are made in countries outside the U.S.

and are denominated in currencies in which the product is sold, which is predominantly the euro.

The manufacturing and royalty payments on these non-U.S.

sales are calculated initially in the currency in which the sale is made and are then converted into USD to determine the amount that our licensees pay us for manufacturing and royalty revenues.

Fluctuations in the exchange ratio of the USD and these non-U.S.

currencies will have the effect of increasing or decreasing our revenues even if there is a constant amount of sales in non-U.S.

For example, if the USD weakens against a non-U.S.

currency, then our revenues will increase given a constant amount of sales in such non-U.S.

For the year ended December 31, 2023, an average 10% strengthening of the USD relative to the currencies in which these products are sold would have resulted in revenues being reduced by approximately $10.3 million, as compared to a reduction in revenues of approximately $1.1 million for the year ended December 31, 2022.

We incur significant operating costs in Ireland and face exposure to changes in the exchange ratio of the USD and the euro arising from expenses and payables at our Irish operations that are settled in euro.

The impact of changes in the exchange ratio of the USD and the euro on our USD-denominated revenues earned in countries other than the U.S.

is partially offset by the opposite impact of changes in the exchange ratio of the USD and the euro on operating expenses and payables incurred at our Irish operations that are settled in euro.

For the year ended December 31, 2023, an average 10% weakening in the USD relative to the euro would have resulted in an increase to our expenses denominated in euro of approximately $7.7 million, as compared to an increase in our expenses of approximately $7.5 million in the year ended December 31, 2022.

Financial Statemen ts and Supplementary Data

Selected Quarterly Financial Data (unaudited)

(In thousands, except per share data)

Year Ended December 31, 2023

Total revenues

Total operating expenses

Operating income (loss) from continuing operations

Net income (loss) from continuing operations

Net loss from discontinued operations

Net income (loss)

Earnings (loss) per share—basic:

From continuing operations

From discontinued operations

From net income (loss)

Earnings (loss) per share—diluted:

From continuing operations

From discontinued operations

From net income (loss)

(In thousands, except per share data)

Year Ended December 31, 2022

Total revenues from continuing operations

Total operating expenses from continuing operations

Operating (loss) income from continuing operations

Net (loss) income from continuing operations

Net loss from discontinued operations

(Loss) earnings per share—basic:

From continuing operations

From discontinued operations

From net loss

(Loss) earnings per share—diluted:

From continuing operations

From discontinued operations

From net loss

Changes in and Disagreements with Acco untants on Accounting and Financial Disclosure

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis